US open Stocks drop USD rallies as Fed fallout continue

US futures

Dow futures -0.95% at 33498

S&P futures -0.8% at 4190

Nasdaq futures -0.5% at 14080

In Europe

FTSE -1.4% at 7073

Dax -1.41% at 15509

Euro Stoxx -1.3% at 4104

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Dow under performs again

US stocks are pointing to a sharply lower start, with the Dow under-performing its Wall Street peers for a second straight session. The Dow closed -0.6% lower in the previous session, whilst the Nasdaq closed 0.87% higher.

The reflation trade which saw investors rotate out of high growth and into value stocks looks to be unwinding. As the tech heavy Nasdaq hit a fresh record high on Thursday, the Dow broke below a key support.

The timing of this unwinding is interesting, because it comes as the Fed indicates towards tighter policy. Usually, higher interest rates are supportive of gains in cyclicals and value stocks. Perhaps the Fed has calmed the market that inflation won’t overheat?

There is no high impacting US data due today and the earnings calendar is also quiet. It is however, triple witching Friday with options and futures on indices and equities set to expire. This can lead to higher levels of volatility.

Equities

Adobe trades +3% pre-market after reporting Q2 results which easily beat forecasts. EPS came in at $3.03 on revenue of $3.84 billion.

Where next for the S&P500?

The S&P 500 extends declines from its all time high of 4267 reached earlier in the week. The price has fallen below the 50 sma on the 4 hour chart but remains supported by the 200 sma and the ascending trendline dating back to November. Strong support can be seen at 4195, the confluence of the 200 sma, the ascending trendline and the weekly low. A move below this level could see the downside gain momentum. A move above 4230 the 50 sma is required for the buyers to look again towards 4267.

FX – USD trades at 2 month high, GBP falls on weak retail sales

The US Dollar continued to drive higher on its post Fed buzz. The US Dollar Index trades at a two month high.

GBP/USD trades under pressure following worse than forecast retail sales. UK retail sales unexpectedly declined in May by -1.4% MoM, this was down from an impressive 9.2% increase in April as non-essential retail re-opened.  Expectations had been for a rise of 1.6%. The weaker print is unlikely to be owing to falling consumer confidence but rather than households are spending money on eating out as indoor hospitality reopened on May 17.

GBP/USD  -0.2% at 1.3895

EUR/USD  +0.05% at 1.1910

Oil slips lower on USD strength

Oil prices are moving lower for a second straight session, although the uptrend remains intact. A stronger US Dollar after the Fed’s hawkish surprise has weighed on demand for the US Dollar denominated commodity. Fundamentally the picture remains sound for oil which is keeping losses limited. International travel is on the cusp off kicking off again as the EU adds the US to its safe travel list.

Concerns over Iranian oil flooding back into the market have lingered over recent weeks as Iran and the US hold direct talks over reviving the 2015 nuclear deal. Iran’s top negotiator said progress was being made on Friday. However, the election of a new President in Iran who is already sanctioned by the US is unlikely to help relations.

US crude trades -0.6% at $70.41

Brent trades -0.67% at $72.06

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Looking ahead

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